Long term care and income taxes
Long term care and income taxes
If you’ve been paying income taxes, some “spending for care” strategies may affect your tax liabilities, especially if involving qualified funds like IRAs. This is important to consider. On the positive side, you may qualify to enjoy deductions for some out-of-pocket care expenses you’ve been paying. Also important, any paid family members supporting care should report the payments to them as income, since the consequences may be harsh and delayed. Competent tax advice can help you plan and report these tax events, and enjoy maximum benefits with minimum taxation.
It may be that income taxes have not been due for years. But the deductible, with long-term care expenses, may be easily reached and surpassed, and faster than you might think. Again, this is new turf for most people, so give it some attention with a tax professional so you know your options.
Getting Started:
Income tax law is constantly changing. This is not something you should try to keep up with. Rather, add to your consulting team a professional tax advisor, preferably a CPA who works regularly with caregiving tax issues. If you even suspect income tax implications for what you’re doing or planning, enroll your tax advisor immediately, not after the fact. You’ll find these professional fees will pay for themselves twice; often in measurable tax benefits, and always in peace of mind.
Some Insights:
The landscape looks like this: insurance, expenses, and tax bracket.
Insurance: Benefits from long-term care insurance are generally non-taxable; the premiums are deductible. State laws may differ. For both, there are rules to be followed.
Expenses: Care costs are normally deductible, but only to the extent that they exceed 7.5% of your Adjusted Gross Income. This floor can, with planning, be reached by bunching expenses, including certain educational expenses, and so forth. Clearly, this is not a DIY project.
Tax bracket: Attention must be paid to previous non-taxed income years, as well as when certain expenses qualify as deductible. Again, if you even suspect that tax factors should be considered, seek expert advice.